The S&P BSE Smallcap index might have slipped 10 percent so far in the year 2018 with some stocks correcting in double digits but it would still outperform global markets, Shankar Sharma co-founder, and chief global strategist, First Global said in an exclusive interview with CNBC-TV18.
Commenting on the Indian market, Sharma said that there is no bear market in Indian equities as well as global markets. In my view Nifty and Sensex will underperform global markets while Smallcaps will vastly outperform global markets, he said.
India is not in a bear market but it could lag in terms of performance. “I am publically very bullish on the smallcaps for the last 4 years,” he said.
“After speaking to the management of many companies in the last 1 month in which we have exposure suggest that FY19 numbers for most of the companies suggest earnings growth of 30-50 percent or even 150 percent which makes valuations not very demanding,” he suggests.
Whenever markets correct, investors should use these dips and pic stocks are a no-brainer opportunity, recommends Sharma. The very reason Sharma likes smallcaps because they don’t get impacted by the worsening macro story (rise in interest rates or inflation).
Oil could be a big worry:
The seeds of the problem for Indian market was sown in the early part of the year 2016 when the commodity cycle bottomed out. India reaped the dividend of a sharp fall in oil prices for 2-2.5 years and that dividend got slowly started reversing from the bottom of $27/bbl.
The same oil dividend which gave us a lot of pleasure will give us a lot of pain when it reverses. Incrementally, Indian macro appears to be the most worrisome amongst BRICS due to oil, said Sharma.
He further added that he will not be surprised if oil moves 20-30% from current levels over the course of next month or a year. The macro for India will be more worrisome compared with other emerging markets.
LTCG:
LTCG Tax is not solely responsible for the Indian market underperforming. Although it did contribute but didn’t constitute as large part of the problem. Yes, there was a point of imposition of tax on equity gain; it was just about time, explains Sharma.
The exemption of LTCG was an incentive for people to move away from fixed income and other non-organised form of saving to a more organised form of saving which would fuel growth. India is still under-owned in terms of household wealth in equities.
“So, yes there was a case but not in 2018 but probably after 10 years when the household wealth in equities could have gone up to 30-40%,” said Sharma.